Shares of EIH, Westlife Food, Indian Hotels Co, Jubilant FoodWorks, Specialty Restaurants, ITDC, Juniper Hotels, and The Byke Hospitality have slipped 3–28% in 2025 so far.
Though Kamat Hotels, Taj GVK, Lemon Tree, Samhi Hotels, and Chalet Hotels have managed gains of 3–31% over the same period, all of these are lagging their 52-week highs by a steep 8–126%, showed Capitaline data.
The fact that hotel stocks are far from their 52-week highs reflects the current softness in demand, said Prashant Biyani, vice-president of Institutional Equity at Elara Capital.
Biyani noted that growth was hit across the board due to the Pahalgam attackand the Air India crash, which weighed on both average room rate (ARR) and occupancy. While flight cancellations continued to hurt occupancy in July, he believes ARR has recovered slightly in August.
GST cut offers a silver lining
The GST Council has decided to cut tax on hotel rooms priced up to ₹7,500 per night from 12% to 5%. Rooms above ₹7,500 will continue to attract 18% GST, while those below ₹1,000 remain tax-free.
Several market participants believe that GST rate cuts bode well for demand and occupancies in non-luxury hotels across tier two and three cities, religious tourism hubs, and mid-scale properties in central business districts (CBDs) locations, where supply is rising. CBDs are the key commercial hubs of a city with a high concentration of offices, banks, and retail outlets, and have hotels that mainly serve business travellers.
“We anticipate this change will translate into stronger demand and improved occupancy levels,” said Neha Kapoor, general manager, Hyatt Place Gurgaon.
The recent tax tweaks could not only drive up demand but also push more customers towards branded hotels, paving the way for higher ARR growth—and with it, better profitability.
“The GST cut is undoubtedly a win for hotels with room rates under ₹7,500. That said, the impact would have been far more meaningful if hotels were also allowed to claim input tax credit,” according to Vaibhav Muley, lead analyst – hotels & hospitality, Yes Securities.
“Even so, midscale names like Lemon Tree Hotels, Samhi Hotels, Royal Orchid Hotels, Kamat Hotels (India), Sayaji Hotels, and Espire Hospitality are expected to clock steady growth in both revenue and Ebitda,” Muley said.
The only dampener is the inability to claim input tax credit (ITC), which keeps the cost structure elevated and could slightly weigh on margins. ITC can be availed on most of the raw materials and operating supplies, including food and beverage supplies, upholstery, mattresses, linens, printing and stationery supplies, electronic goods, and furniture, Muley explained.
“Additional cost burden will be different for each company. Given most of these items will be in 5% GST bucket and some will be in 18% GST bucket, additional cost burden can be in 5-7% range for players with room tariffs below Rs7500.”
“Input tax credit is typically what you can claim as set off against your GST dues,” explained Karan Khanna, lead analyst for hotels, aviation, property and small & midcaps, Ambit Capital. With the GST cut, hotel room rates should become more affordable, particularly for retail customers, which should be positive, he said.
Vikramjit Singh, founder of Alivaa Hotels, a new-age hotel brand backed by Ananta Capital told Mint that no input tax credit will surely increase overheads for hospitality players and impact margins slightly.
Even as the GST cut is expected to make rooms cheaper for travellers and boost domestic tourism during the festival season, industry body Hotel Association of India warned that the withdrawal of ITC could hurt investment and expansion in the segment. “It would prove to be beneficial to retain the GST rate at 5% while allowing ITC, and we urge the finance minister to consider this progressively,” the industry body said.
How hotels fared in Q1FY26
Despite disruptions in May due to geopolitical tensions, hotels saw demand rebound by June and maintained strong momentum in Q1. Most players posted double-digit ARR (average room rate) and revenue per available room (RevPAR) growth, according to a 25 August note by Nuvama Institutional Equities.
“Industrywide, RevPAR rose 11–13% YoY driven by ARR growth of 9–11%, whereas occupancies were largely flat,” the note highlighted. Profitability also improved across the sector on the back of strong ARRs, disciplined cost control and productivity improvements, it added.
Looking ahead
Several analysts believe that the second half of this fiscal year will see strong growth, driven by travel during festival season, weddings, conferences, and a surge in foreign tourist arrivals. Limited supply in premium and luxury hotels should also keep ARR growth intact.
Analysts noted that companies expect double-digit revenue growth to continue, supported by new hotel openings, property upgrades, and asset-light expansion. Profitability is also likely to improve over the next 12–18 months with balance sheet deleveraging and ESG-led cost savings.
“The demand trends remain firm across India in 2QFY26, supporting healthy RevPAR growth into the remainder of the quarters,” said a 29 August report by Motilal Oswal Financial Services.
The brokerage firm said its 2–3 year outlook for India’s hospitality sector stays positive, supported by sustained occupancies at high levels and strong ARR growth.
Khanna of Ambit Capital, said rising demand and earnings in the second half of this fiscal year will fuel re-rating in mid- and small-cap names while helping larger hotel chains sustain their premium valuations.
Confidence is also high among companies to demerge their hotel businesses or list them separately, as the market is clearly favouring the consumption-driven hospitality space, he added. His top picks include Samhi Hotels, Lemon Tree Hotels, Chalet Hotels, IHCL and ITC Hotels.
Attractive valuations offer comfort, and investors may start accumulating hotel stocks as a major decline looks unlikely, while keeping an eye on Q2 earnings, said Biyani of Elara Capital.
According to Capitaline data, Mahindra Holidays is trading at a price to earnings multiple of 55.02x versus its five-year average of 60.58x, while ITDC is at 57.76x compared with 116.43x, indicating valuations have moderated, leaving scope for a potential re-rating and thereby upside.
For now, hotel stocks remain a smart bet, backed by demand recovery and solid growth potential, said Muley of Yes Securities.
(Varuni Khosla contributed to this story)
